A flatbed truck, placed by an angry Lebanese client, blocks the entrance to his bank branch in the southern Lebanese city of Sidon on Jan. 4, 2020, after the establishment refused to allow him to withdraw his savings.
MAHMOUD ZAYYAT/AFP/Getty Images
Lebanon sailed through the financial crisis. Now it’s lunging toward Greek status, and signs of a crisis are everywhere.
On Friday, a near-riot broke out in a bank branch in the northern Lebanese town of Halba when customers complained that they couldn’t withdraw cash. Lebanon is running short of U.S. dollars, and banks everywhere have restricted their supply and put arbitrary limits on the withdrawal of Lebanese pounds. Lebanon’s National News Agency reported a 10-hour standoff at the Halba bank. At one point, security forces fired tear gas into the building, and one customer was taken to hospital.
The good times in the Middle East’s favourite playground are over.
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The cranes are idle in Beirut. Corruption is rampant – always has been. The banks are in crisis, and the debt-choked government, whose annual fiscal deficit is running at 10 per cent of GDP, is starved for cash. Mass anti-government protests since mid-October have paralyzed the main cities and forced the resignation of prime minister Saad Hariri and his cabinet. There is no economic salvation plan.
Adding to the gloom is the possibility of war between Iran and the United States. Tiny Lebanon, bordered by Syria and Israel and not far from Iraq, where a U.S. missile strike killed Iranian General Qassem Soleimani on Jan. 3, lives in a rough neighbourhood.
The Lebanese stock market is in the tank. A recession seems imminent. Ratings agency Fitch predicts a default on some US$88-billion of public debt. An IMF bailout may be in the works. Financial collapse, while unlikely, is not out of the question. That’s because Lebanon, where the Iran-backed Hezbollah party and militia are formidable forces, doesn’t have a lot of friends at the moment. On Sunday, Hezbollah leader Hassan Nasrallah called for attacks on U.S. military sites in the Middle East. Would U.S. President Donald Trump support an IMF bailout of Lebanon? Probably not.
“I’m very pessimistic about the economy,” Kamal Hamdan, an economist and executive director of Beirut’s Consultation and Research Institute, said in an interview.
How did Lebanon’s apparently resilient, largely open and buzzy entrepreneurial economy reach the cliff edge? The country is largely the author of its own misfortunes, even if the long Syrian Civil War on its border – Lebanon took in more than a million refugees – didn’t help. An economic model based on massive consumption and borrowing was always unsustainable. It just took a while for the proof to arrive.
Mr. Hamdan says the roots of the crisis go back to the era of Rafic Hariri, the wealthy businessman and father of Saad Hariri who was prime minister from 1992 to 1998 – the first post-civil war leader – and again from 2000 to 2004 (he was assassinated in 2005). He dropped the income tax rate to 10 per cent and went on a reconstruction borrowing spree. At the same time, warlords-turned-politicians bought votes by spending and hiring recklessly in their constituencies.
Public expenditures exploded. Between 1993 and 2018, the government of this tiny country spent some US$240-billion. But the vast majority of it went to current expenditures such as salaries, not capital expenditures that could have created economic efficiencies. The number of public servants rose fivefold to 300,000. Then, of course, taxes had to rise as deficits widened.
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At the same time, foreign direct investment fell as the Syrian war raged on. Angered by the rise of Shia Hezbollah, wealthy Sunni Arabs from Saudi Arabia and the Gulf states stopped investing in Lebanon and even curtailed tourist visits. Recently, dollar remittances from Lebanese expats also slowed as faith in the banking sector waned.
In recent years, the government has tried to fund itself through a system dismissed as a Ponzi scheme by some economists. To maintain the Lebanese pound’s costly currency peg to the U.S. dollar, the central bank pushed up deposit rates to crazy levels – as much as 10 per cent. Those deposits, in turn, were loaned to the central bank.
In 2019, as the inflow of dollars dried up, the commercial banks introduced informal capital controls, limiting cash withdrawals. Businesses began to suffer from a credit squeeze. The mass riots that started in October and triggered the downfall of Mr. Hariri’s government were in good part motivated by the banking and economic crises. The currency peg is in trouble, and a dollar fetches 2,000 Lebanese pounds on the black market; the official rate is 1,500.
The new government will have to come up with a rescue plan fast – the cabinet is to be appointed this week. If it doesn’t, an IMF bailout of as much as US$25-billion may be needed. The wild card is a war between Iran and the U.S. that could shatter all the economies in the region. For Lebanon, the timing of Gen. Soleimani’s assassination could not have been worse.
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OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
